U.S. Stocks To Open Higher As All Eyes Train On Bond Yields

NEW YORK (MarketWatch) -- U.S. stocks are set to open higher Wednesday, as investors seek out attractively cheap stocks in the wake of the previous session's rout and take in news that retail sales in May experienced their biggest jump in 16 months.

Investors are continuing to eye Treasury yields, which backed lower despite the strong retail sales data. Some analysts believe that yields have peaked and that this is a good time for investors to start buying bonds.

"I think we are getting pretty close to a peak in bond yields," said Peter Cardillo, chief market economist at Avalon Partners. "We are at levels not seen in five years. Of course, yields could inch up a bit more, if we get more negative news about inflation."

"But I think we are at levels where the fear factor in the bond market should continue to wane," he said. "For one thing, we are not seeing any strength in the price of gold, which should be higher if people are so worried about inflation."

The futures contract for the Dow Jones Industrial Average last was up 59 points at 13,480.

Futures contracts for the S&P 500 and the Nasdaq 100 were 8 points higher at 1,515.50 and 9 points higher at 1,927.

Stocks sold off on Tuesday, with the Dow Jones industrials taking a triple-digit decline, as the benchmark yield hovered near the 5.25% level of the fed funds rate. Higher rates will drive up borrowing costs for individuals and companies, threatening an economy that already slowed significantly in the first quarter.

Higher yields could slow the recent private equity binge and worsen the sub-prime lending crisis.

Wednesday's expected stock market gains are linked to anticipation that recent selloffs may be close to an end.

That view allowed investors to take in stride news from the Commerce Department that retail sales jumped 1.4% in May. It was the largest gain in more than 16 months. Economists polled by MarketWatch had expected a 0.7% increase.

The gain provides more rationale for the argument that the economy is strong enough for the Federal Reserve to hike rates in coming months.

Separately, the Labor Department said prices of imported goods rose 0.9% in May, as imported gas prices shot up 2.7% Economists surveyed by MarketWatch were expecting import prices to rise by 0.2% in May.

The Beige Book survey of regional economies is due at 2 p.m. Eastern.

Stocks on the move

Shares of Walt Disney Co. rose 6 cents to $33.17 before the opening. The company completed the sale of its ABC Radio unit to Citadel for $1.35 billion.

Goldman Sachs and Blackstone Group are offering $11.4 billion for Biomet .

Jones Apparel is close to a deal to sell Barneys New York to the Dubai government, according to The New York Post.

Other markets

The benchmark 10-year Treasury yield moved above 5.3% immediately after the data, then backed lower as buyers stepped in. The 10-year note last was up 11/32 at 94-8/32 with a yield of 5.235%.

The dollar rallied, touching a four-month high against the yen and an 11-week high against the euro after the retail sales data. It last was up 0.6% at 122,38 yen as the euro fell 0.2% to $1.3282.

Gold continued to back lower in the early going, dented by the stronger dollar. The front-month August contract fell $1 to $652.10 an ounce.

By Leslie Wines